PERTH (Reuters) – Oil fell over $3 to below $104 a barrel on Monday, pressured by gains in the U.S. dollar and growing worries that the U.S. government’s planned $700 billion rescue plan would not ease wider economic problems.
Signs that the financial crisis is spreading beyond the United States to Europe, where Belgian-Dutch group Fortis and British mortgage lender Bradford & Bingley faced nationalization, also worsened Europe’s economic outlook and cast a pall over energy demand.
U.S. light crude for November delivery fell $3.11 to $103.78 a barrel by 3:52 a.m. EDT, adding to Friday’s losses of $1.13.
London Brent crude fell $2.88 to $100.66.
“There are two factors at play here. One is the short term effect of a rally in the U.S. dollar and second is ongoing concerns about U.S. demand and elsewhere. I think the demand destruction will be significant enough to cut quite deeply into oil prices,” said Jonathan Kornafel, Asia director of Hudson Capital Energy in Singapore.
The U.S. dollar rose over 1 percent against the euro on Monday, first on hopes a bailout bill would soon be passed and later boosted by a further decline in the euro due to growing concerns about the financial system as the toll from the credit crisis spreads to Europe.
U.S. congressional leaders from both parties said they had reached a tentative agreement on Sunday and were gearing up to vote on the rescue plan on Monday, but questions abound as to whether the plan would restore confidence to shaky markets and head off a deep recession.
Although the oil market has not been short of bullish news in the past few months, prices are still down 28 percent from record highs above $147 a barrel struck in July as the economic crisis and high fuel costs hurt demand in the United States and other developed economies.
Analysts said mounting evidence of an economic slowdown in U.S., Europe and Japan would continue to weigh on prices.
“While supply-side uncertainty suggests a floor near $100, the economic context for this quarter and next is weak, suggesting price rallies will be capped and/or sold into,” Harry Tchilinguirian, a senior oil market analyst at BNP Paribas, said in a research report.
News that Iran, the world’s fourth-largest exporter of oil, has avoided new sanctions in a United Nations vote over the weekend also hit prices on Monday.
The U.N. Security Council unanimously passed a resolution on Saturday that again orders Iran to halt its nuclear enrichment work but imposes none of the new sanctions Washington and its allies wanted.
But analysts said a slow recovery in oil and gas production in the U.S. Gulf of Mexico, home to a quarter of U.S. output, could offer some support for prices in the short term.
Some 57.4 percent of oil production and 52.8 percent of natural gas output in the Gulf of Mexico remained shut as of September 25, the Minerals Management Service said on Friday.